Fourth-quarter GDP growth stronger than expected

The economy grew more quickly than previously estimated in the fourth quarter as businesses maintained fairly solid spending and restocked shelves to meet rising demand.

Gross domestic product growth was revised up to an annualized rate of 3.1 percent, the Commerce Department said on Friday in its final estimate, close to its initial estimate of 3.2 percent published two months ago and up from its tally of 2.8 percent made in February.

It also said corporate profits increased 3.3 percent after rising 0.2 percent the prior quarter.

Economists had expected GDP growth, which measures total goods and services output within U.S. borders, to be revised up to a 3.0 percent pace. The economy expanded at a 2.6 percent rate in the third quarter. For the whole of 2010, the economy grew 2.9 percent, while corporate profits grew 20.4 percent, the most since 2004.

You should continue to see investment gain some traction. The first quarter (of 2011) will probably be a bit stronger but the question is after that, whether or not consumer spending can really maintain the traction that we've seen into late last year, said Sean Incremona, economist at 4Cast Ltd in New York.

U.S. financial markets were little moved by the report.

Data so far suggest the economy maintained this growth pace in the first quarter, but there are concerns that rising oil prices could crimp consumer spending and slow the economic recovery.

The pick-up in growth has been acknowledged by the Federal Reserve, which injected massive amounts of money into the economy to stimulate demand. The U.S. central bank is expected to conclude its $600 billion government bond buying program at the end of June.

The government raised fourth-quarter growth estimates to reflect stronger business spending and inventory accumulation than previously forecast.

Business investment rose at a 7.7 percent rate instead of 5.3 percent, lifted by spending on equipment and software, as well as on structures. Spending grew at a 10.0 percent pace in the third quarter.

Business spending on software and equipment increased at a 7.7 percent rate instead of 5.5 percent. Investment in structures rose at a solid 7.6 percent, the first increase since the second quarter of 2008.

Excluding inventories, the economy expanded at an unrevised 6.7 percent pace, the fastest increase in domestic and foreign demand since 1998. Domestic purchases grew at a 3.2 percent rate instead of 3.1 percent.

Consumer spending -- which accounts for more than two-thirds of U.S. economic activity -- grew at a 4.0 percent rate in the final three months of 2010 instead of 4.1 percent. It was still the fastest since the last three months of 2006 and was an acceleration from the third quarter's 2.4 percent rate.

The growth in exports was not as strong as previously estimated, while imports were revised a touch down. Trade added 3.27 percentage points to GDP growth instead of 3.35 percentage points.

Government spending contracted at a 1.7 percent rate rather than 1.5 percent, due to weak state and local government outlays.

The GDP report confirmed a pick-up in inflation pressures on surging food and gasoline prices. The personal consumption expenditures (PCE) index rose at a revised 1.7 percent rate in the fourth quarter instead of 1.8 percent. That compared to the third quarter's 0.8 percent increase.

But a core price index closely watched by the Fed advanced at a revised 0.4 percent rate instead of 0.5 percent. The increase was the smallest rise on record.

(Reporting by Lucia Mutikani; Additional reporting by Chris Reese in New York; Editing by Andrea Ricci)